A Guide to Closed-Ended Fund Structure

Setting up and/or operating a fund involves navigating complex legal and financial structures designed to optimize tax efficiency, manage risk, and accommodate diverse investor needs. Whether you're an investor, fund manager, or financial professional, understanding the typical layers of a fund structure is essential. 

In this guide, we’ll break down the common components of a fund structure, including feeder entities, the main fund, holding companies, and special purpose vehicles (SPVs). By the end, you’ll have a clearer picture of how these layers work together to protect investors, enhance returns, and streamline operations. 

Fund Structure: The Key Layers 

A well-structured fund typically consists of 2 to 4 layers, each serving a distinct purpose:

1. Feeder/blocker entity 

2. Main Fund entity 

3. Ultimate Holding Company

4. Special Purpose Vehicle (“SPV”)

Feeder/blocker entity  

Feeder entity, usually a limited partnership, is a separate legal entity from the Main Fund; typically formed to offer flexibility with respective to investors’ tax status, various fee structures or specifically tailored to meet the needs of investors.  

Feeder entities are most commonly used to house different type of investors, segregating between U.S. Investors, U.S. tax exempt Investors and Other Investors. This will reduce or minimize the investors’ tax exposure (such as exposures to unrelated business taxable income (“UBTI”) or US income tax exposure [due to effectively connected income (“ECI”)]. 

Main Fund entity 

A collective investment scheme where investors monies is pooled together and managed by the fund manager according to the entity’s investment mandate. Common structures used are Limited Liability Partnership (“LLP”) , Limited Liability Company (“LLC) or private limited companies (Pte Ltd) and/or Variable Capital Companies (“VCC”) 

Ultimate Holding Company 

An ultimate holding company is a holding company that owns other companies but isn't itself owned by any other company. However, in the context of a fund, it typically refers to the entity that holds all the SPVs and/or investments and its sole shareholder is the Fund itself. A holding company is useful for shielding the Main Fund while at the same time potentially reducing the overall tax exposure. 

For example, Singapore holding companies are popular due to its one-tier taxation system and access to Double Taxation Agreements with over 100 jurisdictions. 

Special Purpose Vehicle (“SPV”)  

A SPV is typically created as a separate subsidiary company with its own balance sheet to isolate risk, reducing any negative financial impact on the Fund and its investors. 

It is most commonly utilized for purposes including tax planning, isolation of risk, ease of consolidation of co-investors and ease of divestment. 

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How Kai Global Consulting can help 

At KAI Global Consulting, we specialize in providing back-office support, ensuring your fund structure operates smoothly while maintaining full compliance. 

Whether you’re launching a new vehicle or optimizing an existing structure, we ensure: 

• Flawless financial & regulatory operations 

• Scalable support for multi-layered funds 

• Peace of mind through rigorous compliance 

Have questions about fund structures? 

Contact us